Settlement Negotiations Without Prejudice
A UAE court ruling confirms that statements made during settlement discussions are without prejudice and are not admissible as evidence in legal proceedings, to protect the principle of fair negotiation. An analysis of the impact of this judgment by Gaby Samir El Hakim and Maha Alkhabbaz of NBB.
The Court of Cassation had issued its judgment in the Case No. 486 of 2024 (the “Judgment”) to uphold the decision of the Dubai Court of Appeal in Case No. 31 of 2024. The case in question dealt with a dispute related to digital currencies, where the defendant agreed to transfer digital currencies to the plaintiff in exchange for cash amounts. A dispute arose between the two parties with regards to the number of digital currencies transferred, their value, and the amount received from the defendant. The plaintiff based his claim on negotiations that took place between him and the defendant, whereby the latter acknowledged the value of the debt through WhatsApp text messages.
The Court of First Instance disregarded the acknowledgement that had taken place during the negotiations, as such statement enjoys immunity from being accepted as evidence before the Court under the principle of ‘negotiation without prejudice’. Given that the acknowledgment had been made during settlement negotiations and such an amicable solution did not materialise, such acknowledgement is not admissible as evidence before the Court.
The Court of Appeal upheld the initial ruling and also dismissed the plaintiff’s appeal before the Court of Cassation, where it held that any statement or acknowledgment made by a party during settlement negotiations is without prejudice and should not be admissible as evidence in legal proceedings for the benefit of either party.
IMPACT – PROS
This approach balances the protection of the principle of contractual freedom with the reality of modern commercial relationships, which are not always conducted through formal signed contracts but rather through electronic messages or exchanged offers and quotes. In practical terms, this ruling enhances the confidence of individuals and institutions in the flexibility of the judicial system and ensures their protection from arbitrary actions by other parties.
Such flexibility will encourage negotiation by parties when resolving a dispute, as each party may take comfort in the fact that any statements made would not be used for the benefit of the other party should the settlement not materialise.
Moreover, such flexibility may reduce the escalation of disputes before courts, which will reduce the burden placed on judicial processes.
IMPACT – CONS
Although the approach followed in the above-mentioned ruling is flexible in understanding the negotiations to reach a settlement between the parties to the dispute, such approach had disregarded the content of the WhatsApp messages between the two parties as well as testimony of witnesses in this regard. The Court had refrained from determining whether the amount declared by the defendant to resolve the dispute is accurate and owed by him, or whether such declaration was made only for the purpose of reaching a settlement.
In the civil law jurisdiction, refraining to take into consideration what has been stated in negotiation is contradictory to the principles of the law of commerce, which permit providing evidence of commercial transactions by all means possible. This is supported by Article 91 of the Law No. 50 of 2022 Promulgating the Commercial Transactions Law in the UAE, which states that commercial obligations may be established by all means of evidence (unless otherwise provided), regardless of their value.
Therefore, in certain circumstances, it may be that parties’ statements should not be set aside during the negotiations taking place between them, but rather they should be reviewed to clarify the contractual intention behind such statements made. Doing so would grant each party the freedom to present all the evidence and proof in its possession based on the principle ‘the burden of proof falls on the one who claims the fact or act’. The competent Court may then exercise its discretionary power to determine whether such evidence is permissible or not, subject to the circumstances of each case.
CONCLUSION
In light of the above ruling issued by the Court of Cassation, it appears that the Court has prioritised protecting individuals from being involved in obligations that are not documented in form and content based on applicable laws. However, the judiciary must always consider the intention of the contracting parties, which it deduces from evidence, proof, correspondence, witnesses, and all means of proof in order to achieve justice. Is it crucial to use caution when disregarding a statement made by a party during negotiation, as it may be argued that such statements expose the core spirit and intention of the parties.
It is also important to note the speed of contracting in the technological and electronic age, as modern commercial transactions require a new legal framework to keep pace with their speed. Such framework should define the mechanism for conducting negotiations, settlements, and amicable solutions, in order to preserve the rights of each party if they are not completed and return to trial before the judiciary.
There is no single solution that fits all cases, and accordingly such principle cannot be applied generally as consideration must be given to the specific circumstances of each claim.
Text by:
- GABY SAMIR EL HAKIM, group chief legal officer & corporate secretary, National Bank of Bahrain B.S.C.
- MAHA ALKHABBAZ, legal counsel, National Bank of Bahrain B.S.C.
